Mortgage Rates and Forecasts

If you have been following along with the real estate and/or financial markets at all recently, you have certainly heard mumblings about mortgage interest rates. Over the past 12 months, we have seen the steepest, fastest interest rate hike in history. This caused an unprecedented, though temporary, shift in the market in Q3 and Q4 of 2022, and even with rates still hovering between 6-7% this year, the market has rebounded stronger than ever with high buyer demand and competition.

Hopeful home purchasers who had once gotten pre-approved with a far lower interest rate in early 2022, or a historically low interest rate from the pandemic days of 2020 and 2021, were suddenly shocked last year to feel the ramifications of how significantly their affordability had changed. If we look short term at the past 10 years, never have homebuyers seen such a drastic change, so quickly. The “window of opportunity” for buyers (due to decreased demand) that Q3 and Q4 of 2022 presented was suddenly shut once 2023 started. Understandably, far more buyers than usual weren’t willing to take the leap into homeownership at the end of last year because their buying power was practically cut in half, and their estimated monthly payments doubled.

Mortgage interest rate forecasts for early 2023 and the rest of the year have been all over the board, though a common thread is that “it will get worse before it gets better”. That has been true, interest rates have increased even from where they were last year, but as of very recently (this week), they have started to tick down. What we don’t know is if this tick down in rates is temporary, and if they will continue to increase over the next weeks/months, or if this is the start to the rates improving over a longer period for home buyers.

This predicament has left many homebuyers in a state of confusion. Is it better to sit and wait for rates to drop to improve affordability, or is it better to jump into the market now when there is “less competition” due to affordability concerns? The advice we give is that you can never perfectly time your home purchase because there are so many external factors outside of your and our control. Interest rates are extremely volatile right now, up and down, and unfortunately buyers are not in control when they decide to go under contract due to the still fierce competition out there with the limited inventory. What we know is that when interest rates do decrease, buyer demand surges. More buyers enter the market, and they write stronger, higher offers because they have more buying power. When the inverse happens and rates increase, typically the opposite happens.

Looking ahead to the rest of the year, we expect prices to continue to increase at rapid rates, even with interest rates between 6-7%. If interest rates drop, we expect home appreciation and price growth to increase that much more due to increased buyer demand. The Greater Madison Area continues to really struggle with inventory, and this limited supply continues to fuel desperation with hopeful homebuyers to secure a home as a long-term investment.

Posted by Alison Crim on
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